7 valuable ways to plan for your children’s financial future

June 2022
Mother with children
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Wanting the best for your children is only natural. So, the current financially challenging times have likely increased your concern for their future financial wellbeing. 

While you can’t predict the future, and can’t micromanage every second of their lives, what you can do is take steps to give them the best possible life chances.

One way of doing this is through financial planning. 

If you have children, one of your highest priorities should be to ensure they are protected in the event of you not being able to provide for them. Helping with their financial future should also be a key component of your financial plan. 

There are several ways of saving for them, and the earlier you can start the better. There are also ways to plan your own finances to help protect their legacy. 

Here are seven important ways you can help with your children’s financial future.

1. Start with a simple savings account 
When it comes to financial planning for your children, a straightforward interest-bearing savings account in your child’s name is a good place to start. 

As well as somewhere for you to save money for them, and for them to save for themselves, it can also be a useful source of financial education. You can use it to teach them about the importance of saving money and, at an appropriate time, how regular interest can help grow their fund.
Children’s savings accounts tend to offer higher interest rates than standard accounts. As of 23 May 2022, MoneySavingExpert reports that both HSBC and Santander are offering 3% annual interest, subject to the amount saved.
2. Take advantage of Junior ISA tax efficiency
Once you’ve set up an account to help your child manage their savings, a good next step is to consider setting money aside for them on a regular basis – money they cannot access until they reach 18. 

Junior ISAs (JISA) are a terrific way to save money tax-efficiently. You can pay up to £9,000 into a JISA for your child in the 2022/23 tax year.
You can choose to invest in stocks and shares or cash – or both.
The generous maximum allowance means that it’s possible to build up quite a substantial sum for each child. This is especially true if you opt for a Stocks and Shares JISA. 

Investing in stock markets over an extended period provides a good chance of long-term investment growth.
For example, by contributing the maximum £9,000 each year for 18 years, an annual investment growth rate of 5% would mean a fund of over £269,000 at age 18. (Note that these are gross figures and do not take account of investment charges or fees.) 

Money in a JISA grows free from Income Tax and Capital Gains Tax. When your child reaches age 18, they can withdraw the money or allow the JISA to be converted into a standard ISA in their name and continue to save.

Depending on how much money has been saved and the intention for the savings pot, you may want to consider managing the possibility of them having access to a potentially considerable sum of money at a relatively young age. 

3. Think long-term with a pension investment 
Although the idea of setting money aside for your children that they won’t be able to access until they are at least 57 years old may sound odd, it’s a very tax-efficient way to invest for them. 

Regardless of their age, you can pay in up to a maximum of £2,880 each year. On top of that, the government will immediately add basic-rate tax relief to make a total of £3,600. 

Over such an extended period, money invested in stock markets could benefit from substantial growth. It also means that when your children do start work and begin to make pension savings of their own, you’ll have given them a decent head-start in building a retirement fund. 

4. Make inheritance planning a key priority
Alongside saving money for your children, you should also give some thought to protecting their long-term financial future through estate planning. 

It can be an uncomfortable thing to have to think about, but one of your priorities should be to ensure that all your loved ones will be able to live comfortably when you pass on. 

Careful estate planning and minimising your Inheritance Tax (IHT) liability is often a long-term process, but it’s never too soon to start having discussions about it with your financial adviser. 

An effective way to start this process is by gifting your assets. You can make up to £3,000 worth of gifts in the 2022/23 tax year without it counting towards the value of your estate for IHT purposes.

Beyond that, you can actually gift any amount and it won’t be included in the value of your estate, subject to the important criteria that IHT may be payable – on a tapered basis – on the value of the gift if you die within seven years of making it. 

5. Write a will  
Making a will is one of the most straightforward financial processes, yet a Canada Life survey in March 2022 reported that nearly 30 million UK adults don’t have one. 

Setting up a will means you can ensure that your wealth passes to who you want it to when you die. It also helps remove uncertainty and stress from your family – at a time when they are likely to feel vulnerable and emotional.

Protecting your children’s future in this way is one of the most valuable things you can do for them.

6. Teach your children valuable financial lessons 
As well as contributing financially, another way you can help give your children a secure financial grounding is by teaching them some very simple financial lessons that can stand them in good stead as they move into adulthood. 

These don’t need to be complicated, and you’ll obviously have the best idea of how and when they should be passed on.
It’s also down to you what you think they should know, but four suggestions are:
•    The importance of saving money and benefiting from compound growth
•    The effect of debt and the other side of the compounding coin
•    If a financial opportunity sounds too good to be true, it probably is
•    Earning money and budgeting.

7. Fund your children’s education
When it comes to giving your children the best possible life chances, ensuring they receive a quality education can be crucial.

For some that means education at a private school, followed by a university degree course. The financing of this can be a key planning issue. 

According to a report in the Guardian in October 2021, the average annual cost of day school private education is now more than £13,700. 

Additionally, university tuition fees are a maximum of £9,250 a year for UK students. On top of that are the other associated costs of further education, including equipment and accommodation. 

In each case, one advantage you have is that you know what your time frame is when it comes to saving. This makes putting an investment plan into place for both easier and, again, highlights the importance of starting the planning process as early as you can. 

Get in touch

If you’d like to find out more about how we can help you plan your children’s financial future, get in touch. Email clientenquiries@lebc-group.com or call us on 0800 055 6585.

The information contained in this article is based on the opinion of LEBC Group Ltd and does not constitute financial advice or a recommendation to any investment or retirement strategy. You should seek independent financial advice before embarking on any course of action. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken.

The Financial conduct authority does not regulate taxation and trust advice, will writing, university/school fees planning, estate planning and deposit accounts.

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